Question 1

The role of the auditors is to analyze the underlying facts to decide whether information provided by management is fairly presented.Auditors design ____1_____ to analyze information in order to determine whether ____2_____ is/are valid.

Accepted Answer

Auditors design audit tests to analyze information in order to determine whether management's assertions are valid. Audit tests are specific procedures used to examine the financial statements and underlying records. Management's assertions are claims made by management regarding the financial statements, such as completeness, accuracy, and validity of the financial information presented.

Question 2

This organization, established by the Sarbanes-Oxley Act, was organized in 2003 for the purpose of establishing auditing standards for public companies.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) was established by the Sarbanes-Oxley Act in 2002 to oversee and regulate the auditing of public companies. As part of its responsibilities, the PCAOB establishes auditing and related professional practice standards for registered public accounting firms to follow in the preparation and issuance of audit reports. The Auditing Standards Board, International Audit Practices Committee, and Information Systems Audit and Control Association are all separate organizations with different goals and responsibilities.

Question 3

Independence in mental attitude is to be maintained in all matters related to the audit engagement.This is one of the generally accepted auditing standards that is part of the:

Accepted Answer

Independence in mental attitude is one of the General Standards of auditing, which states that the auditor must maintain an impartial and unbiased attitude throughout the audit engagement. The other two General Standards are adequate training and proficiency and due professional care. Operating Standards relate to the conduct of the audit engagement, Fieldwork Standards relate to the performance of the audit procedures, and Reporting Standards relate to the communication of audit findings.

Question 4

This organization was established by the IFAC to set International Standards on Auditing (ISAs) that contribute to the uniform application of auditing practices on a worldwide basis.

Accepted Answer

The International Auditing and Assurance Standards Board (IAASB) was established by the International Federation of Accountants (IFAC) to set International Standards on Auditing (ISAs) that can be applied uniformly worldwide. Therefore, option D is the correct answer. Option A, the International Systems Audit and Control Association, does not set auditing standards but focuses on information systems audit and control. Option B, the Auditing Standards Board, only sets standards for auditors in the United States. Option C, the Public Company Accounting Oversight Board, was established under the Sarbanes-Oxley Act and only sets auditing standards for public companies in the United States.

Question 5

It's necessary to study information-based processing and the related audit function because:

Accepted Answer

The two given options highlight the importance of studying information-based processing and the audit function as information users may not have the ability or time to verify information on their own, and it may also be difficult for decision makers to verify information contained in a computerized accounting system. Hence, both options contribute to the need for understanding these processes and functions, highlighting their significance in the field of accounting and auditing.

Question 6

The ten standards that provide broad guidelines for an auditor's professional responsibilities are referred to as:

Accepted Answer

The ten standards referred to are generally accepted auditing standards (GAAS), which are established by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA). These standards provide guidance to auditors on their responsibilities for planning, performing, and reporting on audits.

Question 7

Claims regarding the condition of the business organization and in terms of its operations, financial results, and compliance with laws and regulations, are referred to as:

Accepted Answer

Claims regarding the condition of the business organization and its operations, financial results, and compliance with laws and regulations are referred to as management assertions. Financial statements are the end result of financial reporting and include the balance sheet, income statement, and cash flow statement. External audit is the process of reviewing financial statements to ensure they are accurate and comply with accounting standards. Presentation and disclosure refer to how financial information is presented to users of financial statements.

Question 8

The general guidelines, known as the generally accepted auditing standards, which include the concepts of adequate planning and supervision, internal control, and evidence, relate to the:

Accepted Answer

The general guidelines that include the concepts of adequate planning and supervision, internal control, and evidence, relate to the Fieldwork Standards. The General Standards relate to the qualifications of the auditor, independence, and professional care; the Operating Standards relate to the conduct of the audit fieldwork and procedures performed, and the Reporting Standards relate to the communication of findings and opinions in the audit report.

Question 9

Which management assertion determines that transactions and related asset accounts balances are actually owned and that liability account balances represent actual obligations?

Accepted Answer

The Rights and Obligations management assertion specifically addresses whether the organization actually owns the assets and whether the liabilities represent actual obligations.

Question 10

The existence of IT-based business processes often result in details of transactions being entered directly into the computer system, results in a lack of physical evidence to visibly view.This situation is referred to as:

Accepted Answer

Loss of audit trail visibility refers to the lack of physical evidence or paper trail that can normally be used to trace transactions or actions taken in a business process. With IT-based processes, there may not be physical evidence and instead, the electronic audit trail may be the only means to track and verify transactions.

Question 11

Audit tests developed for an audit client are documented in a(n):

Accepted Answer

Audit tests developed for an audit client are documented in an audit program, which outlines procedures to be performed during the audit. Audit programs may be created for specific audit areas or for the entire audit engagement.

Question 12

This organization is part of the AICPA and was the group responsible for issuing statements on auditing standards which were historically widely used in practice.

Accepted Answer

The Auditing Standards Board (ASB) is part of the AICPA and is responsible for issuing statements on auditing standards (SAS). These standards were historically widely used in practice, but they were superseded by the PCAOB's auditing standards for public companies.

Question 13

The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.This is one of the generally accepted auditing standards that is part of the:

Accepted Answer

This statement refers to the General Standards, which are the first category of generally accepted auditing standards that provide a framework for the conduct of audits. The General Standards include three standards that relate to the qualifications of the auditor, including technical training and proficiency.

Question 14

Although there are a number of organizations that provide detailed guidance, it is still necessary for auditors to rely on other direction regarding the types of audit tests to use and the manner in which the conclusions are drawn.These sources of information include:

Accepted Answer

Industry guidelines provide specific insights and standards relevant to particular sectors, which can help auditors tailor their audit tests and conclusions to the specific context of the industry they are auditing.

Question 15

The existence of IT-based business processes that result in the details of the transactions being entered directly into the computer system increases the likelihood of the loss or alternation of data due to all of the following, except:

Accepted Answer

Programmer incompetence generally refers to the lack of skill or knowledge in programming, which might lead to poorly designed or insecure systems but does not directly cause the loss or alteration of data. System failure, database destruction, and environmental damage are direct risks to data integrity.

Question 16

The generally accepted auditing standards are divided into three groups.Which of the following is not one of those groups?

Accepted Answer

The generally accepted auditing standards are divided into three groups: General Standards, Standards of Fieldwork, and Standards of Reporting. "Basic Standards" is not a recognized group of auditing standards.

Question 17

The general guidelines, known as the generally accepted auditing standards, which include the concepts of presentation in accordance with the established criteria, the consistent application of established principles, adequate disclosure, and the expression of an opinion, relate to the:

Accepted Answer

The generally accepted auditing standards are divided into three categories: (1) general standards, (2) fieldwork standards, (3) reporting standards. The guidelines mentioned in the question, i.e., presentation in accordance with established criteria, consistent application of established principles, adequate disclosure, and the expression of an opinion, relate to the reporting standards. Therefore, the best choice is D, Reporting Standards.

Question 18

GAAS, generally accepted auditing standards, provide a general framework for conducting quality audits, but the specific standards--or detailed guidance--are provided by all of the following groups except:

Accepted Answer

Certified Fraud Examiners do not provide specific auditing standards or guidance. The other options listed, the Public Company Accounting Oversight Board, Auditing Standards Board, and International Auditing and Assurance Standards Board, all provide specific standards and guidance for auditors.

Question 19

The advantages of using IT-based accounting systems, where the details of transactions are entered directly into the computer include:

Accepted Answer

The use of IT-based accounting systems with direct entry of transaction details into the computer allows for computer controls that can compensate for the lack of manual controls. This can increase the efficiency and accuracy of accounting processes while also reducing the risk of errors and fraud. The other choices listed are disadvantages or risks associated with using such systems.

Question 20

This organization issues guidelines for conducting the IT audit.The standards issued address practices related to control and security of the IT system.

Accepted Answer

The Information Systems Audit and Control Association (ISACA) issues guidelines for conducting IT audits and standards related to control and security of the IT system. The other options, such as the Auditing Standards Board and Public Company Accounting Oversight Board, lack the focus on IT systems and controls that are specific to ISACA. The International Audit Practices Committee may issue auditing standards, but they are not specific to IT audit practices.

Quiz 7: Auditing Information Technology-Based Processes

The role of the auditors is to analyze the underlying facts to decide whether information provided by management is fairly presented.Auditors design __1_ to analyze information in order to determine whether 2___ is/are valid.